What is demand, supply, allocation of resources and the production possibility curve?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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All of these are important ideas in economics.  Let us look at their definitions:

Demand can be defined as the amount of a product that consumers are willing and able to buy at each possible price.  Be sure to note that the definition mentions a range of prices.  This means that demand is depicted as a curve, not as a point on a graph.

Supply is the flip side of demand.  It is the amount of a product that producers are willing and able to sell at each possible sale price (not the price that it costs them to make it).  Like demand, this is represented by a curve on a graph.

Allocation of resources is essentially the process of deciding who gets what.  Resources have to be divided up between various people and also between various industries.  In a market economy, we use prices (which are determined by supply and demand) to determine how resources will be allocated.

A production possibilities curve (PPC) is a curve on a graph that shows the possible combinations of two things that can be made in an economy.  PPCs are used to illustrate the idea of opportunity cost (the idea that you have to give up making some of one thing to make more of another), the idea of efficiency, and the idea of economic growth and how that comes about.